World Grain interview: Rene Steichen

January 01, 1994
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by Teresa Acklin

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The E.C. Commissioner for Agriculture discusses the effects on the grain industry of the European Single Market, CAP reform and world trade issues.

January 1994 marked the end of a year of change for European agriculture. In 1993, Europe became a Single Market, the Maastricht Treaty took effect, farmers harvested the first crops under the Common Agricultural Policy reform, and long-running agricultural trade disputes moved toward resolution through approval of Uruguay Round provisions under the General Agreement on Tariffs and Trade.

January 1994 also marked the end of Rene Steichen's first year as E.C. Commissioner for Agriculture. Mr. Steichen, 51, was appointed in January 1993, after four years as Luxembourg Minister of Agriculture and member of the Brussels Council of Ministers.

Mr. Steichen recently agreed to discuss with World Grain his perspectives on the issues affecting the grain industry in the E.C. and elsewhere. Mr. Steichen was interviewed in his Brussels office by Tom Sewell, a consultant to the international grain trade, and World Grain contributor.

WG: The E.C. currency system, with its technical terms like “green currency,” “switchover” and “freeze,” is hard to understand and pleases no sector of the trade. How is this to be remedied?

Mr. Steichen: As you say, it is complicated, but the rationale behind it is simple. There have been monetary fluctuations in the Community since the 1970s. Farmers confronted with cereal prices fixed annually in European Currency Units should not have to face sudden changes in the prices paid in the national currencies caused by reasons unconnected with agriculture. So we had green currencies to ensure that if one currency was revalued it would not have repercussions on national prices. We had monetary compensatory amounts, which acted as border taxes or refunds to prevent diversions of trade. This worked quite well, but MCAs finished when the Single Market came in last year.

The “switchover coefficient” converting green ECUs into commercial ECUs was introduced to keep German and Dutch farmers' prices stable. This is, of course, an inflationary mechanism in that it causes prices elsewhere in the Community to rise.

The switchover mechanism was extended for two more years in December 1992. At the same time, a system of periodical adjustments of green rates to market rates was introduced for those currencies (“floating” currencies) that were not in the narrow band of fluctuation of the European Monetary System.

With the August 1993 decision to widen that band for all E.C. currencies to plus or minus 15%, (all currencies) have now to be considered as “floating” currencies in agri-monetary terms, and the adjustment mechanism I have just described should, in principle, apply to them.

This could cause drops in prices in Germany and Holland; those countries requested a provisional freeze of the system pending an agreement on the future agri-monetary system. The freeze expired on Dec. 20, 1993.

Generally speaking, the present system is unsatisfactory. The real remedy  giving farmers more stability while at the same time preventing costly budgetary consequences  is to have as soon as possible a single currency as provided for by the Maastricht Treaty.

(Editor's note: Under provisions adopted at the freeze's expiration on Dec. 20, E.C. currencies now may fluctuate within a larger range without triggering green rate adjustments; this expanded range reduces the possibility of adjustments that could lower German and Dutch farm prices.)

WG: The Single Market has done away with customs information sources on movement of wheat, other grains and flour between E.C. member countries. How is that information being gathered and what effect does the lack of information have on members?

Mr. Steichen: Do we really need information on trade flows between Member States in order to manage the European market? Information between Europe and its trading partners is more essential for this purpose.

I do agree, however, that intra-trade statistics may be useful for regions of the Community. We have a system for gathering similar information from VAT (value-added tax) sources, which, although slower, is now beginning to fall into place.

WG: What does Maastricht mean for the E.C.'s food processing and food marketing? Anything different from what the Common Agricultural Policy has offered for years?

Mr. Steichen: Maastricht itself did not touch on agriculture, nor does it have a direct effect on the E.C.'s food processing or food marketing industry. What you can observe, however, is an important enlargement of scale that is taking place at the moment, where also food processor companies from different Member States merge or collaborate closely together. This is an effect of the Maastricht Treaty that will be accelerated by the eventual creation of monetary union.

WG: What impacts will agriculture feel from the enlargement of the Community to include the prospective new member countries? Do Commission studies point to the likelihood of any changes in internal flows of grain and flour?

Mr. Steichen: The enlargement will have great effects for the applicant countries, though minimal for the Twelve (existing member countries). It is important, however, that again the European market will be increased by a great number of consumers, and this will stimulate economic activity also for agriculture.

Certain agricultural sectors will benefit from additional trade possibilities, but as far as cereals are concerned, the new members are more or less self-sufficient. A difficulty will arise in application of the present CAP instruments in these countries since their farmers generally benefit from a higher support level than ours, given the less favorable geographical and climatic conditions.

I should add that, unlike previous enlargements, we shall not be able to have a transitional period based on accession compensatory amounts, which presupposes the existence of border controls; these have been done away with under the Single Market. A different transition system will therefore have to be devised; this will mean making more use of direct income support.

WG: Agricultural policy in the United States is increasingly being driven by environmental as well as consumer-related considerations  very different from previous programs that were designed to benefit farmers. Is this going to happen in Europe, and if so, what form will it take?

Mr. Steichen: Last year's reform of the CAP led to quite a marked movement toward a more consumer-oriented and environmentally friendly agriculture. There is a drive toward extensification and less fertilizer and less pesticide. The whole concept is linked to greater control of production  we don't want to continue with surpluses, which can only be disposed of by stocking or dumping.

We are already experiencing an important change in consumer attitudes, with increasing interest in food quality and also the whole production chain. Our farmers have to answer to this demand. The protection of the environment is a very important issue in this context.

WG: Do you believe that CAP reform has caused any significant change in the E.C.'s wheat and total agricultural situation in the 1993-94 season? Certainly crops are not significantly reduced. When will the reform begin to bring about real change in the Community's agricultural situation?

Mr. Steichen: The question here is “does the reform work, or doesn't it?” I think it has already brought about a fundamental change in our support system, a move away from price support to conditional income support.

Although we are very much in a transitional phase from the old to the new system and are experiencing some difficulties, one can already see results. Our total arable area for cereals is 32.3 million hectares this year, compared with 35.3 million last year; our cereals production is 165 million tonnes, which is slightly less than last year; but as last year's harvest was affected by drought, a truer comparison is with 1991-92, when the figure was 180 million tonnes.

And there are signs of increasing internal cereals consumption due to our low price policy. One has to be careful with these figures as we are only in the first year of transition following the reform, but we think it is beginning to bite.

WG: If the Uruguay Round is concluded with the changes in agriculture following the Blair House agreement, how would you see the wheat and milling industries in the Community as different from the present situation in 10 years' time?

Mr. Steichen: It is difficult to speculate at this moment. The E.C. wants to clarify and complement Blair House. We very much want the Uru-guay Round to be concluded, which will benefit the economy of the world as a whole.

In the wheat sector, it is necessary to establish a demand based on real purchasing power, lacking today. If GATT succeeds, there will be lower subsidies for exports, and world prices should go up. E.C. prices will, of course, drop further as foreseen in the reform, which means a growing competitiveness of E.C. cereals, both on the domestic and the world markets. For example, we have recently abolished export subsidies for semolina. If raw materials prices with- in the E.C. go down, this will make milling more competitive  we may see restructuring in countries where there are small mills.

WG: If the Uruguay Round fails, will the Commission undertake additional steps to rationalize the Community's agriculture, or will it pursue current policies, including battling for market share with the U.S.? Won't budgetary pressures loom increasingly important in determining future farm policy if that is the case?

Mr. Steichen: For economic and political reasons, it is not in the interest of the E.C. that we lapse into increasing acrimony. CAP reform was undertaken primarily for internal reasons, to combat spiralling costs and surpluses. So we must go on with the process, making changes where necessary.

A continued battle with the U.S. is not in the interest of taxpayers, nor in the long-term interest of agriculture or of third countries. But the U.S. must also respect the discipline, and we would expect the E.E.P. (Export Enhancement Program) to stop  the U.S. is currently selling cereals and flour at ludicrously low prices on the world market. An increase in world market prices would help to ease budgetary strain everywhere.

WG: Are you at all optimistic about the future course of world grain demand, or will self-sufficiency continue to erode growth in export trade as consumption gains? The point here is that export trade has essentially held unchanged for more than a decade, whereas world consumption has risen faster than population. Is there any hope for a turnaround in export demand with a Uruguay Round agreement?

Mr. Steichen: I can only speculate. I do not see a major increase in world export demand. The Former Soviet Union will still need imports, but it has no money. China should remain a good market.

WG: European food processing is remarkably without the presence of American companies, whereas U.S. food processing has many enterprises owned by European companies. Why did the industries develop this way, and do you believe that foreign investing might increase in the European food industry, particularly in the central and eastern countries?

Mr. Steichen: I have no ready explanation for the lack of foreign investment in our food industry. This is more a question of companies' general strategy; maybe the scattered pattern of this industry could be a factor.

As I explained earlier, due to increase of scale, the situation will become more transparent and will therefore attract foreign investment more easily. Logically, this should take place, since, due to the creation of the Single Market and future enlargement, Europe should be an attractive area for investment.

For our part, we see increasing investment in the central and eastern countries. We have an expert group studying longer-term relations with these countries, particularly since they have a prospect of eventually becoming members of the Community.